Much like the Compensation Fund used by the Financial Commission, the Australian Financial Complaints Authority (AFCA) has voiced its renewed support for an industry-funded scheme of last resort, named the “Compensation Scheme of Last Resort” (CLSR).
The CLSR aims to ensure consumers and small businesses will receive compensation where misconduct has been carried out by a financial service provider that is unable to pay. The announcement from the dispute resolution authority comes just over a week after the Australian government published a public discussion paper on establishing such a compensation scheme.
This is a welcome sign for Australian traders and investors, as recent figures show that their losses due to financial fraud and schemes have reached very high levels. Indeed CLSR plays a big part in restoring trust and confidence in Australia’s wider financial system, which has taken a beating this year due to numerous findings of misconduct in the banking sector. In situations where a fraudulent or scam firm disappears with investor’s funds, it would be great to have a mechanism in place to help investors recoup at least some of their money.
Nonetheless, funding such a scheme would be an important question to tackle, as financial firms may not be keen to pay into a fund that may not have any meaningful return in brand or trust capital.